Actuarial Finance

Preface

What is actuarial finance?

The work of actuaries has been strongly impacted by the deregulation of financial markets and the financial innovation that followed. Nowadays, there are embedded options in many life insurance and annuity products. Moreover, the use of weather and catastrophe derivatives in P&C insurance, to manage losses from earthquakes, hurricanes, floods and extreme weather, is constantly increasing, while longevity derivatives have been created to manage longevity risk on pools of pensioners.

As a consequence, in recent years actuarial finance has become an emerging field at the crossing of actuarial science and mathematical finance, i.e. when both actuarial and financial risks have to be taken into account. Despite its common roots with modern financial mathematics, actuarial finance has its own challenges due to:

• the very long-term nature (several years or decades) of insurance liabilities;
• the presence of mortality risk and other contingencies;
• the structure and regulations of the insurance and pension markets.

Therefore, it is now widely recognized that actuaries should have a basic knowledge of:

• derivatives and other assets to manage actuarial and financial risks;
• embedded options in actuarial liabilities.

A book written by and for actuaries

As we are writing this book for the typical actuarial science (undergraduate) student or practitioner, our main goal is to find an appropriate balance between the level of mathematics and finance in ...